Acquisitions | 3 Months Ended |
Jan. 02, 2015 |
Business Combinations [Abstract] | |
Acquisitions | 2. ACQUISITIONS |
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Acquisition of BinOptics Corporation—On November 17, 2014, MACOM entered into an Agreement and Plan of Merger with BinOptics, a supplier of high-performance photonic products. On December 15, 2014, MACOM completed the acquisition of BinOptics. In accordance with the Agreement and Plan of Merger, all of the outstanding equity interests (including outstanding warrants) of BinOptics were exchanged for aggregate consideration of approximately $224.1 million in cash, subject to customary purchase price adjustments. The Company funded the BinOptics Acquisition with a combination of cash on hand and the incurrence of $100.0 million of additional borrowings under our existing Revolving Facility. The Company incurred $4.6 million in transaction costs related to the BinOptics Acquisition during the three months ended January 2, 2015. |
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The Company believes BinOptics aligns with its core growth strategy in its Networks market, and that it has a high-performance photonic products business model consistent with the Company’s target model for higher margin products with long product lifecycles. Further, the Company believes that BinOptics complements its existing business with an established footprint and customer relationships in the Asia-Pacific region and expands its addressable market for Indium Phosphide (InP) high-performance laser semiconductors and technology for use in optical networks. |
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The BinOptics Acquisition was accounted for as a purchase and the operations of BinOptics have been included in MACOM’s consolidated financial statements since the date of acquisition. |
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MACOM is recognizing BinOptics’ assets acquired and liabilities assumed based upon the fair value of such assets and liabilities measured as of the date of acquisition. The aggregate purchase price for BinOptics is being allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, none of which is tax deductible. A preliminary allocation follows (in thousands): |
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| | Amount | | | | | |
Current assets | | $ | 41,836 | | | | | |
Intangible assets | | | 135,254 | | | | | |
Other assets | | | 14,090 | | | | | |
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Total assets acquired | | | 191,180 | | | | | |
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Liabilities assumed: | | | | | | | | |
Debt | | | 1,491 | | | | | |
Deferred income taxes | | | 37,745 | | | | | |
Other liabilities | | | 12,810 | | | | | |
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Total liabilities assumed | | | 52,046 | | | | | |
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Net assets acquired | | | 139,134 | | | | | |
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Consideration: | | | | | | | | |
Cash paid upon closing, net of cash acquired | | | 224,114 | | | | | |
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Goodwill | | $ | 84,980 | | | | | |
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The components of the acquired intangible assets on a preliminary basis were as follows (in thousands): |
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| | Amount | | | Useful Lives | | |
(Years) | | |
Developed technology | | $ | 17,954 | | | 7 | | |
Customer relationships | | | 113,500 | | | 10 | | |
Backlog | | | 3,800 | | | 1 | | |
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| | $ | 135,254 | | | | | |
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The overall weighted-average life of the identified intangible assets acquired in the acquisition is estimated to be 9.3 years and the assets are being amortized over their estimated useful lives based upon the pattern over which the Company expects to receive the economic benefit from these assets. |
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The purchase accounting is preliminary and subject to completion including the areas of taxation where a study of the potential utilization of acquired net operating losses is not yet complete, and certain fair value measurements, particularly the finalization of the valuation assessment of the acquired tangible and intangible assets. The adjustments arising from the completion of the outstanding matters may materially affect the preliminary purchase accounting and would be retroactively reflected in the financial statements as of January 2, 2015 and for the interim period then ended. |
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The following is a summary of BinOptics revenue and earnings included in MACOM’s accompanying condensed consolidated statements of operations for the three months ended January 2, 2015 (in thousands): |
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Revenue | | $ | 2,128 | | | | | |
Loss from continuing operations before income taxes | | | (1,379 | ) | | | | |
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Unaudited Supplemental Pro Forma Data—The pro forma statements of operations data for the three months ended January 2, 2015 and January 3, 2014 below give effect to the BinOptics Acquisition, described above, as if it had occurred at September 27, 2013. These amounts have been calculated after applying MACOM’s accounting policies and adjusting the results of BinOptics to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets and additional interest expense on acquisition-related borrowings had been applied and incurred since September 27, 2013. The supplemental pro forma earnings for the three months ended January 2, 2015 and January 3, 2014 were adjusted to exclude discontinued operations. This pro forma data is presented for informational purposes only and does not purport to be indicative of the Company’s future results of operations. |
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| | Three months ended | |
| | January 2, | | | January 3, | |
2015 | 2014 |
Revenue | | $ | 126,731 | | | $ | 90,764 | |
Net loss | | | (7,611 | ) | | | (11,727 | ) |
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Acquisition under Common Control—On February 13, 2014, MACOM acquired Nitronex, LLC (Nitronex) an entity under common control, through a cash payment of $26.1 million for all of the outstanding ownership interests of Nitronex (Nitronex Acquisition). MACOM funded the Nitronex Acquisition through the use of available cash and borrowings under its revolving credit facility. The purchase price includes $3.9 million held on account by a third-party escrow agent pending any claims by MACOM in connection with general representation matters made by GaAs Labs, LLC (GaAs Labs) in the transaction. The indemnification period expires in August 2015, at which point if no claims are made, all amounts will be paid to GaAs Labs. |
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Acquisition of Mindspeed Technologies, Inc.—On December 18, 2013, MACOM completed the acquisition of Mindspeed, a supplier of semiconductor solutions for communications infrastructure applications. The Company acquired Mindspeed to further its expansion into high-performance analog products. |
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MACOM completed the Mindspeed Acquisition through a cash tender offer (Offer) by Micro Merger Sub, Inc. (Merger Sub), a wholly-owned subsidiary of MACOM, for all of the outstanding shares of common stock, par value $0.01 per share, of Mindspeed (Shares) at a purchase price of $5.05 per share, net to the seller in cash, without interest, less any applicable withholding taxes (Offer Price). Immediately following the Offer, Merger Sub merged with and into Mindspeed, with Mindspeed surviving as a wholly-owned subsidiary of MACOM. At the effective time of the merger, each Share not acquired in the Offer (other than shares held by MACOM, Merger Sub and Mindspeed, and shares of restricted stock assumed by MACOM in the merger) was converted into the right to receive the Offer Price. MACOM funded the Mindspeed Acquisition through the use of available cash and borrowings under its revolving credit facility. The aggregate purchase price for the Shares, net of cash acquired, was $232.0 million and MACOM assumed $81.3 million of liabilities and incurred costs of $4.5 million expensed during fiscal year 2014. |
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The Mindspeed Acquisition was accounted for as a purchase and the operations of Mindspeed have been included in MACOM’s consolidated financial statements since the date of acquisition. |
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MACOM recognized assets acquired and liabilities assumed based upon the fair value of such assets and liabilities measured as of the date of acquisition. The aggregate purchase price for Mindspeed was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, none of which is tax deductible. |
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The Company finalized the purchase price allocation of the Mindspeed acquisition during the current quarter. No allocation adjustments were recorded during the three months ended January 2, 2015. The final allocation of purchase price is as follows: |
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| | Amount | | | | | |
Current assets | | $ | 50,612 | | | | | |
Intangible assets | | | 138,663 | | | | | |
Deferred income taxes | | | 92,881 | | | | | |
Other assets | | | 31,788 | | | | | |
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Total assets acquired | | | 313,944 | | | | | |
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Liabilities assumed: | | | | | | | | |
Current liabilities | | | 35,270 | | | | | |
Debt | | | 40,177 | | | | | |
Other liabilities | | | 5,865 | | | | | |
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Total liabilities assumed | | | 81,312 | | | | | |
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Net assets acquired | | | 232,632 | | | | | |
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Consideration: | | | | | | | | |
Cash paid upon closing, net of cash acquired | | | 232,028 | | | | | |
Fair value of vested awards assumed in acquisition | | | 785 | | | | | |
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Total consideration | | | 232,813 | | | | | |
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Goodwill | | $ | 181 | | | | | |
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In connection with the Mindspeed Acquisition, MACOM assumed all of the outstanding options and all unvested restricted stock awards under Mindspeed’s equity plans and converted such options and stock awards into equivalent MACOM awards under the same general terms and conditions as were in existence with adjustments made to shares and exercise prices, if any, pursuant to a formula stipulated in the terms of the acquisition. The fair value of the assumed options and stock awards was $4.1 million, of which $0.8 million relates to vested stock options and has been included in the purchase consideration and the remainder relates to unvested stock options and stock awards, which will be expensed as the remaining services are provided. |
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The components of the acquired intangible assets were as follows (in thousands): |
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| | Amount | | | Useful Lives | | |
(Years) | | |
Developed technology | | $ | 109,263 | | | 7 | | |
Customer relationships | | | 11,430 | | | 10 | | |
In-process research and development | | | 17,970 | | | N/A | | |
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| | $ | 138,663 | | | | | |
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The overall weighted-average life of the identified intangible assets acquired in the acquisition is estimated to be seven years. |
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The following is a summary of Mindspeed’s revenue and earnings, included in MACOM’s accompanying condensed consolidated statements of operations for the three months ended January 3, 2014 (in thousands): |
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Revenue | | $ | 1,253 | | | | | |
Loss from continuing operations before income taxes and restructuring charges | | | (3,598 | ) | | | | |
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Subsequent to closing the Mindspeed Acquisition, MACOM divested the wireless business of Mindspeed. The operations of the wireless business are included in discontinued operations through the date of sale. The Company completed the sale of the wireless business in February 2014. The accompanying consolidated statement of operations for the three months ended January 3, 2014 includes the following operating results related to the business to be divested (in thousands): |
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Revenue | | $ | 457 | | | | | |
Loss before income taxes | | | (3,374 | ) | | | | |
Benefit for income taxes | | | 1,269 | | | | | |
Loss from discontinued operations, net | | | (2,105 | ) | | | | |
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Unaudited Supplemental Pro Forma Data—The pro forma statements of operations data for the three months ended January 3, 2014 below give effect to the Mindspeed Acquisition, described above, as if it had occurred at September 27, 2013. These amounts have been calculated after applying MACOM’s accounting policies and adjusting the results of Mindspeed to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets and additional interest expense on acquisition-related borrowings had been applied and incurred since September 27, 2013. The supplemental pro forma earnings for the three months ended January 3, 2014 were adjusted to exclude discontinued operations. This pro forma data is presented for informational purposes only and does not purport to be indicative of the Company’s future results of operations. |
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| | January 3, 2014 | | | | | |
Revenue | | $ | 102,924 | | | | | |
Net loss | | | (8,078 | ) | | | | |
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Other Acquisitions—In the fiscal fourth quarter of 2014 we acquired two businesses, I.K.E., Incorporated (IKE Micro) and Photonic Controls, LLC (Photonic Controls), for total cash consideration of $2.8 million. IKE Micro is a specialized build-to-print house based in Nashua, New Hampshire. The primary purpose of the IKE Micro acquisition is to drive COGS reductions and further improve gross margin in our Optoelectronics business. Photonic Controls is a small design company based in Horseheads, New York which specializes in photonic semiconductor development and system design. Its primary focus is to design silicon photonic chips for 100G/400G optical networks. |
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The assets acquired and liabilities assumed were recorded at their fair values and operating results were included in the financial statements from the date of acquisition. The preliminary purchase price allocation resulted in goodwill of $3.9 million and intangible assets, including manufacturing know-how and customer relationships, of $1.6 million recorded on the date of acquisition, which will be amortized over 7-10 years. Additionally, the Company recorded a contingent consideration liability of $0.8 million related to the acquisition of Photonic Controls which is included in other long-term liabilities in the accompanying consolidated balance sheet as of October 3, 2014. The maximum possible payment of contingent purchase price is $1.3 million. Approximately $1.7 million of the goodwill resulting from these acquisitions is deductible for tax purposes. The purchase price allocation will be finalized in fiscal 2015 upon receipt of final information related to valuation of intangibles and no allocation adjustments were recorded in the three months ended January 2, 2015. The acquisitions were not material to the Company’s consolidated financial statements. |
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Investments—The Company determines the appropriate classification of its investments at the time of acquisition and re-evaluates such determination at each balance sheet date. The Company records at cost non-marketable equity investments where it does not have the ability to exercise significant influence or control and periodically reviews such investments for impairment. |
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During fiscal year 2014, the Company made a minority investment of $0.3 million in the convertible debt of a privately-held U.S. based company. The Company classified this investment as trading securities. (See Note 3.) |
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During fiscal year 2014, the Company made a minority investment of $5.0 million in the equity of a privately-held U.S. based company. This minority equity investment is accounted for under the cost method due to ownership less than 20% and lack of significant influence and is included on the consolidated balance sheets in other long-term assets. The Company evaluated the investment for other-than-temporary impairment as of January 2, 2015 and determined that no impairment existed. Additionally, the Company determined that the equity investment contained embedded derivatives. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the equity investment and to adjust the fair value as of each subsequent balance sheet date. As of January 2, 2015, the Company determined the embedded derivatives had no value, consistent with prior periods and the inception date. |